In May, HMRC published guidance on how PISCES trading events interact with employee share plans, including the tax-advantaged plans. This note summarises what this means in practice for participants in employee share plans where the relevant company’s shares have been admitted on a PISCES platform.

In summary, the usual rules in relation to Income Tax, national insurance contributions (NICs) and Capital Gains Tax for employee share transactions are unchanged by PISCES. The HMRC guidance is to be welcomed in providing clarity over how the rules will apply in this context.

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What is PISCES?

PISCES (Private Intermittent Securities and Capital Exchange System) is a new government-backed trading platform that allows employees and shareholders in private companies to buy and sell shares on an intermittent basis. It aims to create liquidity in private company shares.

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General Tax Position on Share Sales

• Selling shares on PISCES will generally result in Capital Gains Tax on any taxable gain (subject to any available reliefs and exemptions). However, note that in some cases, Income Tax charges may also arise in relation to employment-related shares depending on relevant facts and circumstances.

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General Tax Position on Share Acquisition

• Normal employment-related income tax charges will potentially apply on acquisition of shares either directly in a PISCES trade, or for a company where shares are otherwise admitted on a PISCES platform.
• If shares are considered 'Readily Convertible Assets' (RCAs), Income Tax will be collected under the PAYE regime and NICs will also be due. Admission to a PISCES platform will in many cases mean that shares are RCAs (whether or not they otherwise would have been), on the basis that trading arrangements exist or are likely to come into existence in accordance with an arrangement which is in place.

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Enterprise Management Incentives (EMI)

• No Income Tax/NICs on exercise of an EMI options granted at market value, if all EMI conditions are met.
• A PISCES trading event can be a trigger event for exercising options, but only if stated in their original EMI agreement.
• New legislation will soon allow changes to existing EMI agreements to include a PISCES trading event as an exercisable event without losing tax relief. Wait for guidance due July 2025.

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Company Share Option Plan (CSOP)

• Same treatment as EMI—a PISCES trading event can be a trigger event for exercising CSOP options if allowed in the original contract.
• Upcoming legislation will allow safe amendments to include a PISCES trading event without losing tax benefits. Wait till guidance is published before making any changes.

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Save As You Earn (SAYE)

• Employees must wait for their three- or five-year term to end before exercising options – PISCES does not impact the operation of an SAYE scheme.
• An employee can potentially sell SAYE shares via a PISCES trade provided the company’s constitutional documents permit this.

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Share Incentive Plan (SIP)

• Full tax relief applies after holding shares for five years (three years for dividend shares) and partial relief is available between three and five years. PISCES does not impact the operation of a SIP.
• Employees may sell SIP shares via PISCES once any applicable holding periods have ceased to apply, provided the company’s constitutional documents permit this.

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Capital Gains Tax (CGT)

• As noted above, employees may owe CGT on gains when selling shares through PISCES, after any Income Tax has been paid.
• Employees are responsible for reporting this through Self-Assessment (either by submitting a tax return or using the “real time” CGT service).

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Share Valuations

• PISCES transaction prices are accepted as fair market value by HMRC, subject to various caveats, notably in relation to connected party transactions, transactions that are not at arm’s length, the time elapse since the PISCES transaction of more than six months and any significant change in the trading performance since the PISCES transaction.
• The guidance provides potential for the simplification of the valuation process for new grants and disposals, subject to the various caveats, although the guidance should not detract from companies seeking full share valuation advice before authorising grants and disposals.

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No Stamp Duty

• No stamp duty or SDRT will be charged on PISCES transactions, reducing transaction costs. A specific exemption is being introduced on this point.

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Key Takeaways

• This HMRC guidance is helpful. Clarity on tax treatment is important in building confidence in the platform, and additional flexibility in relation to amending EMI and CSOP options is very much to be welcomed.
• Normal tax rules are generally unchanged – relevant tax advice should be sought.
• Companies considering admission to a PISCES platform should look at any EMI or CSOP arrangements and consider if appropriate to make any changes to EMI or CSOP agreements – await forthcoming government guidance.
• Unlisted companies looking at employee share plans should consider whether PISCES offers an opportunity to design plans to help Employees realise value ahead of an exit event.